The influence of the global crisis on the slowdown of the emerging markets

A presente dissertação investiga a relação empírica entre a crise financeira de 2007-2009, a crise da dívida soberana de 2010-2012 e a recente desaceleração dos mercados de capitais nos mercados emergentes. A exposição dos mercados emergentes à crise nos desenvolvidos é quantificada através de um modelo de interdependência de factores. Os resultados mostram que estes sofreram, de facto, um choque provocado por ambas as crises. No entanto, este foi um choque de curta duração enquanto os mercados desenvolvidos ainda lutavam com as consequências resultantes das sucessivas crises financeiras. A análise do modelo mostra ainda que após a crise da divida soberana, enquanto os mercados desenvolvidos iniciam a sua recuperação, os emergentes desaceleram o seu crescimento. De forma a completar a análise do modelo foi efectuado um estudo sobre a influência dos fluxos de capitais entre os mercados emergentes e desenvolvidos na direcção do seu crescimento, revelando que existe uma relação entre estes dois eventos.

Dinamicity and unpredictability of emerging markets: an implementation of Goetzamnn and Jorion (1999)

This research is to be considered as an implementation of Goetzmann and Jorion (1999). In order to provide a more realistic scenario, we have implemented a Garch (1,1) approach for the residuals of returns and a multifactor model thus to better replicate the systematic risk of a market. The new simulations reveal some new aspects of emerging markets’ expected returns: the unpredictability of the emerging markets’ returns with the global factor does not depend on the year of emergence and that the unsystematic risk explains the returns of emerging markets for a much larger period of time. The results also reveal the high impact of Exchange rate, Commodities index and of the Global factor in emerging markets’ expected return.

Beyond ‘best practices': the international regulation of capital markets

It is widely acknowledged that there is considerable international pressure for international ‘best practices’ to be adopted via national legislation. This would occur either by means of model laws or through the passing of country specific legislation that closely replicates foreign legal formats, administrative rules, and or regulation. These attempts to spread the implementation of ‘best practices’ have gained importance in the international debate due to the liberalization of international capital flows. The oversight, country reports, and technical assistance carried out by international organizations along with the growing internationalization of investors have also contributed to this growing pressure. In this respect, due to the constant evolution of transactions and the end objective of making sure that capital markets are developed with just rules, structures, and methods, this article looks to analyze the adoption of standardized models of capital market regulation. Furthermore it looks to examine the motivation and interest of states and other ‘stakeholders’ at the international level.

International portfolio diversification: evidence from emerging markets

Taking into account previous research we could assume to be beneficial to diversify investments in emerging economies. We investigate in the paper International Portfolio Diversification: evidence from Emerging Markets if it still holds true, given the assumption of larger world markets integration. Our results suggest a wide spread positive time-varying correlations of emerging and developed markets. However, pair-wise cross-country correlations gave evidence that emerging markets have low integration with developed markets. Consequently, we evaluate out-of-sample performance of a portfolio with emerging equity countries, confirming the initial statement that it has a better a risk-adjusted performance over a purely developed markets portfolio.

Optimal Mirrleesian taxation in non-competitive labor markets

We study optimal labor income taxation in non-competitive labor markets. Firms offer screening contracts to workers who have private information about their productivity. A planner endowed with a Paretian social welfare function tries to induce allocations that maximize its objective. We provide necessary and sufficient conditions for implementation of constrained efficient allocations using tax schedules. All allocations that are implementable by a tax schedule display negative marginal tax rates for almost all workers. Not all allocations that are implementable in a competitive setting are implementable in this noncompetitive environment.

Revamping asset quality to maximize income in office markets

We use a unique dataset of c. 2200 commercial towers located in the city of Sao Paulo from 2005:Q3 to 2014:Q3 to study the relationship between asset quality and potential income in different niches of the office market. Our evidence suggests a rent premium in the market for larger office space (corporate) and that building quality is more relevant in this segment. We hypothesize such difference is due to larger competition and commoditization in the market for smaller office space (office) as income in this segment tends to be insensible to different levels of asset quality when we control for spatial variation. We also find that rent premiums associated with building class are monotonically increasing, but not strictly positive across certain quality thresholds. Thus, landlords and developers should take into consideration the market niche and acceptable target building class levels when designing their investment plans in order to maximize income .

Valuing emerging markets companies : new approaches to determine the effective exposure to country risk

The aim of this paper is to propose new methods to measure the effective exposure to country risk of emerging-market companies. Starting from Damodaran (2003), we propose seven new approaches and a revised CAPM for emerging markets companies. The “Prospective Lambda” represents the effective exposure according to analysts’ estimates of growth. The “Relative Lambda” relies on the firm value estimated through a relative valuation. The “Retrospective Lambda” represents the ex-post effective exposure to country risk. The “Company Effective Risk Premium” is a generalization of the Retrospective Lambda, and expresses the premium effectively requested by investors to invest in that specific company in the past year. “The Actual Lambda” and the “Company Actual Risk Premium” represent, respectively, the actual exposure to country risk of a company and the actual premium requested by investors to invest in that specific company. The “Industry Lambda” reflects the median exposure to country risk of the industry in which the company belongs. We tested our new measures of exposure to country risk on the Latin American emerging markets companies according to the classification of the MSCI Emerging Markets Latin America Index. The results confirm that the new approaches can be effectively applied by financial analysts to stable-growth companies that operate in emerging markets and to mature markets companies that operate in emerging markets, providing with a more reliable estimate of both the premium effectively requested by investors in the past and the actual premium. Applying the new approaches, the cost of equity reflects the effective exposure of a company to country risk without being over- or underestimated, as is the case with other existing approaches.

How the full opening of the capital account to highly liquid financial markets led Latin America to two and a half cycles of ‘mania, panic and crash’

Latin America has recently experienced three cycles of capital inflows, the first two ending in major financial crises. The first took place between 1973 and the 1982 ‘debt-crisis’. The second took place between the 1989 ‘Brady bonds’ agreement (and the beginning of the economic reforms and financial liberalisation that followed) and the Argentinian 2001/2002 crisis, and ended up with four major crises (as well as the 1997 one in East Asia) — Mexico (1994), Brazil (1999), and two in Argentina (1995 and 2001/2). Finally, the third inflow-cycle began in 2003 as soon as international financial markets felt reassured by the surprisingly neo-liberal orientation of President Lula’s government; this cycle intensified in 2004 with the beginning of a (purely speculative) commodity price-boom, and actually strengthened after a brief interlude following the 2008 global financial crash — and at the time of writing (mid-2011) this cycle is still unfolding, although already showing considerable signs of distress. The main aim of this paper is to analyse the financial crises resulting from this second cycle (both in LA and in East Asia) from the perspective of Keynesian/ Minskyian/ Kindlebergian financial economics. I will attempt to show that no matter how diversely these newly financially liberalised Developing Countries tried to deal with the absorption problem created by the subsequent surges of inflow (and they did follow different routes), they invariably ended up in a major crisis. As a result (and despite the insistence of mainstream analysis), these financial crises took place mostly due to factors that were intrinsic (or inherent) to the workings of over-liquid and under-regulated financial markets — and as such, they were both fully deserved and fairly predictable. Furthermore, these crises point not just to major market failures, but to a systemic market failure: evidence suggests that these crises were the spontaneous outcome of actions by utility-maximising agents, freely operating in friendly (‘light-touch’) regulated, over-liquid financial markets. That is, these crises are clear examples that financial markets can be driven by buyers who take little notice of underlying values — i.e., by investors who have incentives to interpret information in a biased fashion in a systematic way. Thus, ‘fat tails’ also occurred because under these circumstances there is a high likelihood of self-made disastrous events. In other words, markets are not always right — indeed, in the case of financial markets they can be seriously wrong as a whole. Also, as the recent collapse of ‘MF Global’ indicates, the capacity of ‘utility-maximising’ agents operating in (excessively) ‘friendly-regulated’ and over-liquid financial market to learn from previous mistakes seems rather limited.

How the full opening of the capital account to highly liquid financial markets led Latin America to two and a half cycles of ‘mania, panic and crash’

Latin America has recently experienced three cycles of capital inflows, the first two ending in major financial crises. The first took place between 1973 and the 1982 ‘debt-crisis’. The second took place between the 1989 ‘Brady bonds’ agreement (and the beginning of the economic reforms and financial liberalisation that followed) and the Argentinian 2001/2002 crisis, and ended up with four major crises (as well as the 1997 one in East Asia) — Mexico (1994), Brazil (1999), and two in Argentina (1995 and 2001/2). Finally, the third inflow-cycle began in 2003 as soon as international financial markets felt reassured by the surprisingly neo-liberal orientation of President Lula’s government; this cycle intensified in 2004 with the beginning of a (purely speculative) commodity price-boom, and actually strengthened after a brief interlude following the 2008 global financial crash — and at the time of writing (mid-2011) this cycle is still unfolding, although already showing considerable signs of distress. The main aim of this paper is to analyse the financial crises resulting from this second cycle (both in LA and in East Asia) from the perspective of Keynesian/ Minskyian/ Kindlebergian financial economics. I will attempt to show that no matter how diversely these newly financially liberalised Developing Countries tried to deal with the absorption problem created by the subsequent surges of inflow (and they did follow different routes), they invariably ended up in a major crisis. As a result (and despite the insistence of mainstream analysis), these financial crises took place mostly due to factors that were intrinsic (or inherent) to the workings of over-liquid and under-regulated financial markets — and as such, they were both fully deserved and fairly predictable. Furthermore, these crises point not just to major market failures, but to a systemic market failure: evidence suggests that these crises were the spontaneous outcome of actions by utility-maximising agents, freely operating in friendly (light-touched) regulated, over-liquid financial markets. That is, these crises are clear examples that financial markets can be driven by buyers who take little notice of underlying values — investors have incentives to interpret information in a biased fashion in a systematic way. ‘Fat tails’ also occurred because under these circumstances there is a high likelihood of self-made disastrous events. In other words, markets are not always right — indeed, in the case of financial markets they can be seriously wrong as a whole. Also, as the recent collapse of ‘MF Global’ indicates, the capacity of ‘utility-maximising’ agents operating in unregulated and over-liquid financial market to learn from previous mistakes seems rather limited.

Learning in peer-to-peer markets: evidence from Airbnb

Peer-to-peer markets are highly uncertain environments due to the constant presence of shocks. As a consequence, sellers have to constantly adjust to these shocks. Dynamic Pricing is hard, especially for non-professional sellers. We study it in an accommodation rental marketplace, Airbnb. With scraped data from its website, we: 1) describe pricing patterns consistent with learning; 2) estimate a demand model and use it to simulate a dynamic pricing model. We simulate it under three scenarios: a) with learning; b) without learning; c) with full information. We have found that information is an important feature concerning rental markets. Furthermore, we have found that learning is important for hosts to improve their profits.

Pricing the cost of an election: the impact of the 2014 elections on stock markets

Qual o efeito de eleições em ativos reais? É possível mensurar diretamente a diferença de preços mesmo que só possamos enxergar um dos resultados potenciais? Essa dissertação estima esses efeitos utilizando metodologia baseada em opções sobre ações. O modelo aqui desenvolvido adaptção tradicional Black-Scholes para incorporar dois novos parâmetros: um salto no preço do ativo perfeitamente antecipado e uma série de probabilidades diárias refletindo as crenças sobre quem venceria a corrida eleitoral. Aplicamos esse método para o caso brasileiro das Eleições Presidenciais de 2014 e a Petrobras - uma importante companhia do setor petrolífero do país -utilizando dados de bolsa do segundo turno das eleições. Os resultados encontrados mostram uma diferença de 65-77% para o valor da companhia, dependendo de quem vencesse nas urnas. Isso é equivalente a aproximadamente 2.5% do PIB de 2014 do país.